Chrysler, GM shutdowns may skid Ford's plans

Bloomberg|

May 07, 2009, 02.25 AM IST

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MICHIGAN: Ford Motor, the only self-sufficient US automaker, may be hobbled should prolonged shutdowns at Chrysler and General Motors lead to failures of essential partsmakers. Ford, launching three critical models, is at risk of periodic shutdowns if suppliers it shares with GM and Chrysler collapse, analysts said. GM is closing 14 North American plants for as much as nine weeks this summer and Chrysler, which filed for court protection from creditors on April 30, plans to close its factories until emerging from Chapter 11 in a month or two.

���There���s definitely potential for sporadic shutdowns at Ford,��� said Mike Wall, supplier analyst at industry consultant CSM Worldwide in Northville, Michigan. The idling of plants at Chrysler and GM ���is going to shoot a significant amount of stress through the supply chain.���

Ford is vulnerable because of the interwoven nature of the auto-supply network. Ford shares 70% of its suppliers with GM and 64% with Chrysler, according to CSM. Asian-based automakers share 59% with Chrysler and 58% with GM. The loss of a single part can close a plant, Mr Wall said. Toyota Motor and Honda Motor could also be hit by production interruptions if suppliers who lose business during the GM and Chrysler shutdowns can no longer afford to stay in business, said Craig Fitzgerald, a supplier consultant at Plante & Moran in Southfield, Michigan.

Chrysler purchasing chief Scott Garberding said in court documents that the failure of suppliers to the Auburn Hills, Michigan-based automaker would ���cause severe production problems��� for other carmakers, ���including GM and Ford.��� Ford doesn���t anticipate production disruptions in the next 30 days, said Todd Nissen, a spokesman for the Dearborn, Michigan-based automaker.

���We don���t see any short-term issues with continuing production,��� said Mr Nissen. ���Beyond that, we���re all looking at the same things. It���s a fluid situation.���

GM, the largest US automaker, has until June 1 to meet a government-imposed deadline to negotiate concessions with labor and lenders or file for bankruptcy. GM is operating on $15.4 billion in government loans and requested $11.6 billion more. ���Take a supplier with 50% GM and 50% Ford, if GM files, suddenly their book of business is cut in half,��� said Keith Francis, managing director at restructuring firm Hydra Professional in Farmington Hills, Michigan.

���Ford, which has positioned itself to stay out of the bailout, has increased risk with its supply base because of what���s happening.��� Some of the country���s largest suppliers may follow Chrysler into bankruptcy if rival GM also files.

Lear, which gets a combined 26% of business from GM and Chrysler, and American Axle & Manufacturing Holdings, which relies on the automakers for 84% of sales, may be most at risk, Himanshu Patel, a New York-based analyst with JPMorgan Chase wrote in a May 4 report. ���A potential GM bankruptcy may even cause these two suppliers to strategically file,��� he wrote. Mr Patel rates both Southfield, Michigan-based Lear and Detroit-based American Axle ���neutral.���

American Axle is managing relationships with customers as usual, said spokeswoman Renee Rogers. The company is monitoring the situation with Chrysler, she said, declining to comment on how it���s affecting parts shipment. Lear spokesman Mel Stephens declined to comment.

The bigger risk to automakers may be smaller companies that provide critical parts and may go out of business with little warning, said analyst Mr Francis.

President Barack Obama has said he intends for Chrysler���s bankruptcy reorganisation to be completed within 60 days. Bankruptcy Judge Arthur Gonzalez May 4 gave the automaker permission to pay suppliers for parts and services provided before the automaker filed for court protection. The automaker owes $1.71 billion to direct suppliers of parts and $600 million to indirect providers, according to court filings.

Mr Wall does not anticipate a mass shutdown at Ford. He predicted Ford would engage in ���triage��� to provide financial aid to keep essential suppliers alive. ���If you don���t go in and provide financial assistance, how much money do you lose if your plant goes down?��� said Mr Wall.

Mr Fitzgerald agrees, and said most automakers could manage in the near-term with no need for forced shutdowns unless Chrysler���s bankruptcy drags on. ���It really is important that Chrysler come out as quickly as they possibly can,��� he said.

There have been no delays in the launches of Ford���s newest models, the redesigned Fusion, Mustang and Taurus, spokesman Nissen said. Ford launched the Fusion last month, is rolling out the Mustang now and has plans for a summer introduction for the Taurus.

Ford, which has temporarily idled factories to reduce inventory, also has no plans for a prolonged shutdown. The automaker furloughed factories this week in Illinois, Ohio and Missouri and plans to resume production later this month.

Toyota hasn���t changed its approach to dealing with the current US supplier situation, said Mike Goss, a spokesman for Toyota���s North American manufacturing unit in Erlanger, Kentucky. ���We are confident in our ability to work with suppliers to insure an uninterrupted supply of parts and materials.��� Honda, whose Accord was the best selling car in the US last month, is anticipating the Chrysler ���situation will have some impact, but we���re still evaluating things at this point,��� said Ed Miller, a Detroit-based spokesman.